delivered the opinion of the court:
This matter is before the court, pursuant to plaintiffs request under Rule 53(c)(2)(ii), for interlocutory review of an order of the trial judge filed February 19,1982, granting defendant’s motion to limit plaintiffs proof at trial.
The underlying action, filed May 6, 1975, asserts an overpayment of federal income taxes by the Great Northern Railway Company for the years 1959, 1960, 1961 and 1962.
Subsequent to the issuance of the court’s standard pretriаl order on liability (Rule 111) on December 18, 1978, plaintiff served defendant with its pretrial submission, enclosing therewith schedules of its investments in and retirements of railroad grading and tunnels, and specifying therein that expert testimony would be offered at trial regarding the useful lives of such assets as determined by the actuarial method of life аnalysis.
On December 22, 1981, defendant filed its motion for an order restricting plaintiffs proof at trial to what it contended were the "factual grounds” asserted by plaintiff in its claims for refund. Specifically, defendant requested that the court limit plaintiffs proof of a useful life for Great Northern’s grading and tunnel bores to the sole grоund as stated in the refund claims: "Changes in railway technology can be assumed to lead to a remaining life of 50 years from
On February 19,1982, the trial judge granted defendant’s motion, finding that plaintiffs intended proof was at variance with the ground for recovery set forth in its claims for refund and limiting proof at trial to evidence of foreseeable future changes in railrоad technology. The instant request for review followed.
As an initial matter, we must decide whether we should exercise interlocutory review pursuant to Rule 53(c)(2). As a general practice, we do not favor interlocutory review of trial court determinations because such review results in piecemeal treatment of litigation. DeLong Corp. v. United States,
Plaintiffs request presents just such "extraordinary circumstances” warranting our attention. The order in question sharply limits the evidence that plaintiff can permissibly introduce at trial, thereby affecting the manner in which both parties will prepare and present their cases. Should a ruling on the cоrrectness of that order be denied, it could needlessly prolong and complicate the trial, certainly increasing the expenditure of time and money by all concerned.
Moreover, the issue raised by the trial judge’s ruling is properly severable from the main action inasmuch as it concerns only an evidentiary matter, apart from the merits of the case. Given the stridency of the parties on the admissibility of the actuarial method, we are virtually guaranteed that the issue will have to be decided by this court at some time, regardless of the outcome of the litigation. In similar circumstances, review has been found to bе proper. See National Presto Indus., Inc. v. United
It is well established that a refund action cannot be brought in this court unless a claimant has first met certain statutory prerequisites. The specific requirements imposed are set forth in sectiоn 7422(a), which provides that:
No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected * * * until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.*226 there has not been a recovery of such amounts by tax deductions. While costs associated with the track lives are normally not considered depreciable presumаbly due to the inability to establish a useful life, they can be properly depreciated.
The trial judge, upon examination of plaintiffs refund claims, decided that they did not give the Commissioner notice of past retirements as a basis for projecting the remaining useful life of its existing grading and tunnel bores. The relevant portions of the refund claims read as follows:
*226 Costs generally become depreciable on the ground of anticipáted obsolescence insofar as external causes and events could lead to the diminution of value. For the above-identified railway facility accounts, where obsolescence is foreseeable, the question is only one of ratable recovery over the expected period of remaining usefulness. Initially, no obsolescence was anticipated in most cases and therefore provision for ratable recovery must be made at the time it becomes apparent that obsolescence becomes a factor. Rev. Rul. 65-264, 1965-2 C.B. 53 at P. 54, see also Virginia Electric and Power Co. v. U.S., 687 CCH Para. 7930. Under Bulletin "F” ratable estimated deductions are also provided for under "Retirement Accounting.” Changes in railway technology can be assumed to lead to a remaining life of 50 years from 1959. Accordingly, taxpayer claims amortization of these assets commencing Jаnuary 1,1959.
From this, the trial judge found only one reason to be given in support of the claimed deduction: "* * * presently foreseeable obsolescence resulting from anticipated changes in railroad technology. The language employed contains not the slightest allusion to past retirement experience as a basis, independent or alternative, for such allowance.”
Thus framed, the question for decision is whether the use of past retirement data by means of the actuarial method represents a new ground for recovery, the introduction of which would be precluded because of its omission from the refund claims, or whether such data is simply evidence probative of the factual basis clearly asserted in the claims and, therefore, is properly admissible at trial.
We find the latter choice to be the correct one. We cannot agree with the trial judge that plaintiffs intended proof is at varianсe with the contents of its refund claims, for we do not believe that the introduction of past retirement data constitutes a new or different ground for recovery. This conclusion follows from an understanding of the fundamental use of the actuarial method of life analysis. Admittedly, the specific application of thе methodology is detailed and
For the purposes of section 167 the estimated useful life of an asset is not necessarily the useful life inherent in the asset but is the period over which the asset may reasonably be expected to be useful to the taxpayer in his trade or business or in the production of his income. This pеriod shall be determined by reference to his experience with similar property taking into account present conditions and probable future developments. [Treas. Reg. § 1.167(a)-l(b) (I960).] (Emphasis added.)
For this reason, we find plaintiffs efforts to present its past retirement experience to be consistent with the ground for recovery stated in its refund claims. The fact that certain assets have had finite lives due to obsolescence in the past is obviously probative of what lives may be expected in the future for similar assets. As interpreted through the actuarial method, this evidence merely forms the starting point from which plaintiffs factual assertion of anticipated obsolescence must be proved.
The precision to which defendant urges that we now hold plaintiff goes wholly beyond that which is required by the Code or regulations. If a claim fairly apprises the Commissioner of the ground on which recovery is sought, then the claim is adequate for the purposes of bringing suit under
Examination has determined that you have failed to establish that the property in question had an estimated useful life and absent this factor you are unable to compute and claim a depreciation deduction in accordance with Section 167 of the Internal Revenue Code.
Any argument that the Commissioner had no notice of the basis of plaintiffs claims or that he was denied the opportunity to fully investigate the substance of the claims is belied by this statement. In sum, we view the introduction of past retirement experience to be nothing more than plaintiffs attempt to refute the Commissioner’s determination and to substantiate a useful life for its assets.
Defendant’s reliance on our recent decision in L. E. Myers Co. v. United States,
Turning to Myers itself, that case involved four separate grounds (the opinion often uses the term "issues” to refer to legal grounds) which plaintiff attempted to rely upon in its suit for refund.
Upon the record and the briefs, but without oral argument, plaintiffs request for review was granted by order of the court on June 18, 1982, and the order of the trial judge filed on February 19, 1982, was vacated. The court’s order
Notes
Plaintiff is a Delaware corporation formed on March 2, 1970, as a result of a merger of the Northern Pacific Railway Company, the Great Northern Railway Company, the Chicago, Burlington & Quincy Railroad Company and the Pacific Coast Railroad Company. Plaintiff has, by operation of law, succeeded to the entire interest of the Great Northern Railway Company.
26 U.S.C. § 167 (1976). All section references are to the Internal Revenue Code of 1954, as in effect during the tax years in issue, unless otherwise indicated.
A thorough explanation of the actuarial method of life analysis can be found in Burlington Northern Inc. v. United States,
The factual basis of plaintiffs claims was not anticipated changes in railway technology, as erroneously stated by defendant in its motion to limit, but rather anticipated obsolescence. Whether the changes in railway technology referred to in the claims are changes, if any, which occurred before or after 1959 is neither clear nor necessarily relеvant.
As we understand it, plaintiff purports that an analysis of its historical retirement experience by means of the actuarial method which is then refined by testimony of technological changes will demonstrate a useful life for its railroad grading and tunnel bores. See, e.g., Virginia Elec. & Power Co. v. United States,
Many practitioners, although recognizing the requirement that every ground must be set forth in detail, advocate that the facts stated be limited only to those sufficient to "apprise,” presumably on the theory that an "insufficiency,” if raised, can be timely corrected, whereas a "variance” often cannot.